Circular flow of income pt 2

Question 1

Imports(M)

Answer 1

Goods and services bought domestically from overseas (money going out)

Question 2

Exports(X)

Answer 2

Goods and services sold to buyers in overseas markets (money going in)

Question 3

Social transfers

Answer 3

Financial assistance in the form of benefits (welfare)

Question 4

Leakages

Answer 4

Also known as withdrawals, it is monetary resources leaving the country

Question 5

Components of leakages

Answer 5

Taxes (T)
Savings (S)
Imports (M)

Question 6

Injections

Answer 6

Resources entering the system

Question 7

Components of injections

Answer 7

Investment (I)
Government spending (G)
Exports (X)

Question 8

Leakages, injections and GDP

Answer 8

When injections>leakages, then the GDP will rise
When leakages>injections, then the GDP will fall
When injections=leakages, the national income is in equilibrium

Question 9

National income multiplier effect

Answer 9

A multiplier that shows how much GDP changes overall due to an injection (investment(i), government spending(g), exports(x)) in the economy. A numerical value that can be negative or positive without units.

Question 10

Big Leak

Answer 10

When there’s a lot of money leaving, there’s is a smaller multiplier as there is less money to circulate

Question 11

Small leak

Answer 11

When there’s lots of money staying, there’s a bigger multiplier as there’s more money to circulate to increase GDP